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We read many articles accompanied by full explanatory graphs, about
how a candlestick formation can predict short future behavior of a
certain stock or index. The weak point of these (very well written )
articles, is when we come to phrases like "mostly bullish formation"
or "no further bearish confirmation required" etc. At this very
moment, the only possible way is to rely upon experience of author,
believe it or not. I think that total absence of criteria may
cultivate phanatism. On the other side, explanaroty charts are
carefully selected to emphasize documents. (Some times I wonder if
the author is advertising "bearish harami". Anyway.)
Amibroker users have the ability to decide if a candlestick formation
is effective or not.
After short notes in #2017 and #2047, I will give another example.
EVENING STAR
A 3 days bearish formation, consisting of a long white (close>open)
candle, followed by a "doji"(close nearly equal to open) and ending
with a long black (close<open) candle.
Traders following candlesticks have two severe questions :
a. After the second day formation (white+doji), shall we see a black
candle ??
b. After the third day, with "evening star" already built, shall we
have the extra bearish results promised by many (and sometimes
remarkable) authors ???
Let us follow an Amibroker user:
Question a.
Write in Automatic Analysis the code
COND1=IIF((ABS(C-O)<0.1*ABS(H-L))AND(C>ref(h,-1)),1,0);
COND11=IIF(REF(COND1,-1)>0 AND C<REF(C,-1) AND C<O and o<ref(c,-
1),1,0);
filter=cond11==1;
numcolumns = 3;
column0=cum(cond1);
column1=cum(cond11);
column2=100*CUM(COND11)/cum(cond1);
column0name = "TIMES";
column1name="CONFIRM";
column2name="%";
column0format=1.0;
column1format = 1.0;
column2format = 1.0;
BUY=COND1;
SELL=COND11;
(searching the whole market, for a selected period of time) OR
(searching a certain stock for a long period)
Press "Explore"
In columnn "TIMES" you read how many times a 2 days formation
occurred before a possible evening star.
In columnn "CONFIRM" you read how many times an evening star was
fully formated.
In columnn "%" you read the percentage of confirmation.
BUY-SELL is used here just for tutorial reasons.
Doubleclick a stock on the Results list and you see green arrows for
(many) 2days formations and red arrows for (fewer) fully formated
evening stars.
If the % is high in some stocks, perhaps this behavior will have a
repetition.
NOTHING MORE, NOTHING LESS.
NO MORE SAFE THEORETICAL PROMISES .
BARE AND STRICT STATISTICS.
If the % is low, wait fore more future data to be convinced.
Question b.
What means "bearish" for you?
I suppose in the following code that price will loose 20% the next 20
days after an EVENING STAR appeared.
Write in Automatic Analysis the following code.
Put another P or D, according to your "bearish" point of view.
P=10;/* change percentage loss*/
D=20;/* change days to wait for bearish confirmation*/
COND1=IIF((ABS(C-O)<0.1*ABS(H-L))AND(C>ref(h,-1)),1,0);
COND11=IIF(REF(COND1,-1)>0 AND C<REF(C,-1) AND C<O and o<ref(c,-
1),1,0);
COND111=IIF(REF(COND11,-20)>0 AND LLV(C,20)<(1-(P/100))*REF(C,-
D),1,0);
filter=cond111==1;
NUMCOLUMNS=5;
COLUMN0=CUM(COND11);
column0name="TIMES";
COLUMN1=CUM(COND111);
column1name="BEARISH";
COLUMN2=100*COLUMN1/COLUMN0;
COLUMN2NAME="%";
column0format=1.0;
column1format=1.0;
column2format=1.0;
SELL=COND11;
BUY=filter;
Press "EXPLORE".
You can read how many TIMES an evening star occurred, how many
BEARISH confirmations followed and finally the beloved %.(BUY-SELL
are again tutorial: A red arrow with each evening star and a green
arrow 20 days later).
For the stocks you read 100%, O.K. take a look next time.
This is one of the valuable informations you could get from Amibroker.
Thank you for your time.
Dimitris Tsokakis
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